The practice of giving employee gratuities or “tipping” allegedly originated from the 17th century English practice called “To Improved Promptitude” or “TIP”. As the story goes, bar patrons would slip waiters a coin to speed up delivery of their drinks. The practice has now changed so that the tip is given at the end of the service and not the beginning. And now, California law has quite a bit to say on the issue of tipping. Here are five things to know about employee gratuities in California.

The Gratuity is the Exclusive Property of the Employee

California law clearly states that the tip belongs to the employee, not the employer,“Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid…” Labor Code Section 351.

This raises two common legal issues. First, it is unlawful (both civilly and criminally) for the employer to take any part of the tip that was left for the employee. Employers cannot require their employees to share their tips with the employer. One-hundred percent of any tip must go to the employee.

Next, it is legal under specific circumstances for employers to require employees to share their tips with other employees, called “tip pooling”. However, managers, certain supervisors, and owners cannot share in the pooled tips, even if those persons participated in the table service of the customer.

2. Minimum Wage Must Still Be Paid

People are often surprised to learn that California employees who receive regular tips, such as waiters, must still be paid at least minimum wage before tips. This requirement applies no matter how much the employee is tipped on a given day. For example, a waitress could receive $100.00 in tips over the course of an hour and the employer must also pay at least minimum wage of $10.50 per hour. It is illegal to pay employees exclusively in tips.

California’s employee-friendly tip law is in the minority. Most states and the federal government allow employers to credit or offset the applicable minimum wage if the employee receives tips at work. Furthermore, roughly 40% of the states only require a base wage of just $2.13 per hour for tipped employees; the rest of the wage may come from tips.

3. Employers Cannot Deduct Credit Card Fees

Issues with employee tips increasingly arise as more and more people pay by credit card. Employers are expressly prohibited from deducting any credit card transaction fees from tips. For example, if a customer pays a gratuity of $5.00 and a $20.00 bar tab by credit card, and the employer pays a $1.00 transaction fee to the credit card processor, the employer is not allowed to require the employee to pay the twenty-cent pro rata share of the credit card fees. All of the credit card fees must be paid by the employer.

This law is a good example of how California wage laws can be very favorable to employees and burdensome for employers.

In the hustle and bustle of a restaurant, it can be easy for employers to overlook their rigorous obligations to allow for the opportunity for breaks under California law.

5. Employers Can Be Sued For Violations

Employers who even unknowingly violate California’s gratuity laws can face a variety of legal claims. This includes minimum wage violations, tip theft “conversion”, and violation of California’s tip laws. Employers with 20 or more employees who violate these laws may be sued as a part of a class action lawsuit, or under California’s Private Attorney General Act (called “PAGA” and pronounced “pah gah” by lawyers).

Are you a tipped employee in California? Do you have questions or concerns about how your tips are being handled by your employer? Contact the Law Office of Brian Mathias.